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RAJEEV RANJAN
PRINCE MATHEW
SANDEEP BAKSHI
MOHAMMED ASRAR
ROHIT DHANRAJ PATIL
RAJESH PATEL
INTRODUCTION
A breakeven analysis is used to determine how much sales
volume your business needs to start making a profit.
Total Cost:
The sum of the fixed cost and total variable cost for any given level of
production.
(Fixed Cost + Total Variable Cost )
Profit/ loss
The monetary gain or loss resulting from revenues after
subtracting all associated costs. (Total Revenue - Total Costs)
ASSUMPTIONS
All elements of cost i.e. production, administration and selling
distribution can be divided into fixed and variable components.
where:
TFC is Total Fixed Costs,
P is Unit Sale Price, and
V is Unit Variable Cost
Your variable costs are 2.20 R.s materials, 4.00 R.s labor, and
0.80 Rs overhead, for a total of 7.00 R.s per unit.
BEP= TFC/P-V
From this we can make out that the company should sell
products at higher price to reach BEP faster.
TheAs Break-even
output is point
Costs/Revenue Total
The
occurs revenue
Thewhere
totaltotal
lower is
costs
the
TR TR TC generated,
Initially a by
determined
therefore
the
firm the
VC price,
revenue
firm the
equals
will
willcharged
less
total
incur
incur fixed
price
costs – the
(assuming firm, and
in
steep the
variable
costs, total
costs
thesesolddo– –
thisthe quantity
example
accurate
these vary would
revenue
not depend
again this
haveforecasts!)
to sell
curve.
Q1will onbe
to
directly
output or
determined with is
the
sales.
by the
generate
sum
amount sufficient
of produced
FC+VC
expected
revenue to cover forecastits
sales
costs. initially.
FC
Q1 Output/Sales
If the firm
Break-Even Analysis chose to set
price higher
than Rs.2
Costs/Revenue (say Rs.3)
TR (p = Rs.3) TR (p = Rs.2) TC
VC the TR curve
would be
steeper –
they would
not have to
sell as many
units to
break even
FC
Q2 Q1 Output/Sales
Break-Even Analysis
TR (p = Rs.1)
Costs/Revenue If the firm
TR (p = Rs.2)
TC VC chose to set
prices lower
(say Rs.1) it
would need
to sell more
units before
covering its
costs
FC
Q1 Q3 Output/Sales
Break-Even Analysis
TR (p = Rs.2)
Costs/Revenue TC
Profit VC
Loss
FC
Q1 Output/Sales
MARGIN OF SAFETY